Treasurys swing to losses after Fed decision

SaumyaVaishampayan

NEW YORK (MarketWatch) — Treasury prices posted losses on Wednesday after the Federal Reserve held monetary policy steady, as expected.

The Fed said economic conditions are too weak for it to begin slowing its monthly bond purchases, currently set at $85 billion in an effort to hold interest rates down and stimulate the economy. Still, the central bank reiterated the economy was improving at a “moderate” pace and noted that downside risks had diminished.

“In this statement, it seemed like [Fed officials] chose to ignore the softer economic data and removed their comments about the tightening of financial conditions that were in the previous statement,” said Robert Tipp, chief investment strategist at Prudential Fixed Income.

“The market took that as, all else equal, a Fed is closer to taper than it was at the last meeting,” he added, which led to the selloff in Treasurys.

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The 7-year note
US:7_YEAR
yield rose 3 basis points to 1.909%. The Treasury Department held a “very strong” auction that sold $29 billion of the securities at a yield of 1.870%, said David Ader, head of government bond strategy at CRT Capital Group LLC.

Bidders offered to buy 2.66 times the amount of 7-year debt sold, more than the average of 2.58 times in the last six sales. Indirect bidders, which include foreign central banks, bought 42.3%, less than 43.0% in recent sales. Direct bidders, a group that includes domestic money managers, purchased another 23.9%, more than an average of 18.8%.

Direct and indirect bidders combined bought 66.2%, which is high, said Ader. “Clearly there was a need for [7-year debt] away from the dealer community,” he said. “It’s quite a comment on the market that it’s taking place with yields at their most recent lows.”

Part of the demand could have sprung from rebalancing that is typical at the end of the month, he added. The 7-year note offering followed successful auctions of 2-year notesUS:2_YEAR
on Monday and 5-year notes on Tuesday.

Payroll provider Automatic Data Processing said Wednesday that employers added 130,000 jobs this month, short of the 150,000 jobs expected by MarketWatch-polled economists, and down from a revised 145,000 in September.

Bloomberg

Fed Chairman Ben S. Bernanke

The Labor Department released consumer price data for September, which had been delayed because of the government shutdown, that showed consumer prices rose a seasonally adjusted 0.2% last month, in line with views.

Treasurys have been in somewhat of a holding pattern in recent sessions as the market waits for clarity about the Fed’s timing, with the benchmark 10-year yield meeting resistance as its bumps up against the technical threshold of 2.48%. But strategists say that if the 10-year breaks through that level, it could be poised to fall further.

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